You need the axe from the Castle Treasury to win this one. When you get it,
just sit there and attack the Dragon - his life force will measure on the
arrow at the top of the screen. When he dies, you get a piece of the stained
glass window (a "shard").

Note that when your characters hit 25th level, each gets a little friend -
a falcon, a dragonfly, or a butterfly, depending on the character type.